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Protecting your small business

As a small business operator, it is important you protect your interests when you deal with other businesses. Here are some steps to keep your business safe.

What to do if your small business is facing financial difficulties

When a small business is facing financial pressure, there are a number of factors to consider. It’s important that small business owners understand any underlying issues causing the financial pressure.

By keeping accurate and up-to-date financial and business records, you’ll be in a better position to monitor the financial position of your small business and take action if it is facing financial difficulties.

There are three questions a business director should ask if their company is facing financial difficulties:

  1. Does the company have sufficient cashflow and cash reserves to pay debts when they are due?
  2. Am I acting in the best interests of the company and its stakeholders, or am I only acting in my own self-interest?
  3. Am I getting the right advice for me and for my company from a professional adviser I can trust?

There are other important issues to consider, which is why it’s important to seek advice from a trusted adviser. A trusted adviser could be a financial adviser, accountant, registered liquidator or lawyer.

Financial Counselling Australia’s Small Business Debt Helpline can assist with debt and other financial issues. Call 1800 413 828 or visit the website.

A company may be insolvent when it cannot pay its debts when they are due and payable. This can lead to serious consequences for the business and company directors. When debts cannot be paid, continuing to trade may not be in the best interest of the company or its stakeholders.

If the company’s total liabilities do not exceed $1m, you may consider appointing a restructuring practitioner to restructure the company’s debts and retain control of the company. There are other eligibility criteria to be met before you can enter this type of restructuring and you work with the restructuring practitioner to restructure the company’s debts. Find out more about small business restructuring.

For general information on insolvency for directors see Information sheet 42 (INFO 42) and also refer to Regulatory Guide 217 for information on your duty as a director to prevent insolvent trading.

Creditors owed money may consider taking legal action against a company to recover debts. In some circumstances, including when the director has given a personal guarantee, creditors may also pursue company directors to recover debts. Government agencies, like ASIC and the Australian Taxation Office, may also take action if the law is breached.

Ask questions when dealing with other businesses

Before you deal with another business, ask them for their Australian Company Number, Australian Business Number and any licence or authority they hold to operate in certain industries.

Verify the information about the companies, businesses or licences by checking ASIC’s registers and other government agencies. ASIC’s registers can help you:

  • confirm if the company is registered and identify the officeholders
  • confirm the business name and who holds the name
  • check whether a company or person is banned or disqualified from managing companies, being involved in financial services or in the credit industry
  • check whether a company or person has entered a court enforceable undertaking.

If people are managing a legitimate business they should have no concerns answering your questions.

Find out more questions you can ask, see Information Sheet 26 Dealing with businesses and companies (INFO 26).

Monitor companies you deal with

Monitor other companies by registering with our free Company Alert service. This service will automatically notify you if documents are lodged relating to the company you nominate.

The categories of documents you can include are:

  • internal administration documents
  • debt documents
  • deregistration documents
  • financial documents.

Review loan and credit contracts

When you sign a contract for a business loan or credit, you should check the terms to make sure they are fair. Terms can be unfair if they cause a significant imbalance in the parties’ rights and obligations, or if they are detrimental to you and beneficial to the lender. Find out more at Information Sheet 211 Unfair contract terms for small businesses (INFO 211).

Consider getting legal advice if you don’t understand any terms in your contract. 

ASIC is responsible for unfair contract terms law in financial products and services. Visit the Australian Competition and Consumer Commission’s website for guidance on unfair contract terms in advertising, franchising, independent contracting or leasing contracts.

Manage and resolve disputes

If you find yourself in a dispute with a customer, supplier, business partner, employee or Government agency there are things you can do. The Australian Small Business and Family Enterprise Ombudsman has a simple five-step process to resolving business disputes.

Other Government services that can help resolve disputes are:

If your dispute is about bad debts read our tips on small business debt recovery.

If you suspect the business you are dealing with has rebirthed their company to avoid paying debts you can report their illegal phoenix activity.

Get trusted business advice

Make sure you get trusted professional advice if you are uncertain about your legal obligations or if you have concerns about the company’s finances.

If you are managing change, planning for the future or if something does not appear right in your business, it is critical to get help early. For example, you might need to engage a financial adviser, accountant, registered liquidator or lawyer. And don’t wait – seeking advice early may provide more options that will help your business to be successful. Find out more on professional advice.

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Last updated: 26/04/2024 04:28